$8 TRILLION DEBT?

Last week I reminded you of my prediction this recession was starting last December, largely because the consumer, who was 71% of our gross domestic product, was tapped out. His credit card limit was maxxed, and his home equity line of credit was maxxed. I am still pulling for Ben Bernanke, but I have given up on Hank Paulson. He sold Congress a $700 billion bailout fund to buy troubled mortgage assets, and used half the money to bailout Wall Street and the banks, recently saying he was through—leave it to Obama. None of the money has gone to buying mortgages. And FDIC Chairwoman Sheila Bair has been begging for authority to do so. Meanwhile, it is rumored that Obama’s pick for Treasury, Timothy Geithner, wants to get rid of her, because she is not a “team player.”
In addition, Christopher Cox at the SEC has not restored the naked short selling rule or the “uptick” rule to Wall St.; and there is no more discussion of all the reasons why banks and investment houses should not be one and the same. I guess there is no need now, because all the former investment houses are now banks, or bank holding companies. This could not have happened except as a result of Congress under Clinton repealing the Glass-Steagall Act, which had been around since the depression. The investment houses, combined with Greenspan’s low 1% interest rate for 18 months following nine-eleven, were the origin of this whole debacle. Now, the investment houses are becoming our banks, and they want all our demand deposits, on which they usually don’t pay interest.
We raised the US debt limit from $10 trillion to $11.3 trillion to accommodate the bailout. But, since then, the government has loaned, invested or committed to over $7 trillion more, bringing the total to another $8 trillion just this year. That amount equals over half of our annual domestic production. If all that is expended, the total debt is going to be four times what it was just in 2000. According to The Bullion Buzz, a combination of spending on the New Deal, the Marshall Plan, Korea, Viet Nam, Iraq, NASA, the race to the moon, the S& L bailout, and even throwing in the Louisiana Purchase don’t total half of $8 trillion. Remember, a trillion is a million times a million. And the Detroit three auto manufacturers are still begging. As my old granddaddy used to say, “You can’t drink yourself sober, and you can’t spend yourself rich.”
Yet, surprisingly, our dollar has had a recent rally against all other currencies. Why? Because all the rest of the world were growing economies based on sales to the US for practically everything we need. Now, their economies are tanking because our purchases are way down, and they don’t have enough internal demand for their production. Thus, their currencies are experiencing depreciation. You might say they are at least temporarily in worse shape than we are. Still, Japan and China are lending us the money to stay in business. When they have to use their money to bolster their own internal economy, their purchases of our debt are going to suffer. When that finally happens, our dollar value will suffer, and gold and silver will rise in value. Inflation will be rampant.
According to the US Government General Accounting Office (the Comptroller) the TARP plan administrators have failed to figure out how to make sure financial firms receiving billions of dollars of Federal funds are complying with limits on executive compensation and dividend payments. Does that surprise you? Incidentally, did I ever mention that Section 202 of the bailout bill, as passed, raises the “biodiesel” tax credit from fifty cents to $1 per gallon and amends it to “liquid fuel”? This is the income tax credit given producers for mixing bio and petroleum fuels, which they are then free to sell abroad to other countries. The same credit which raised the price of corn sky high. What has that got to do with troubled mortgages? It just represents the enormous pork packed into this bill.
President Obama was elected by promising to bring us change. Let’s hope it is change for the better. So far it looks like more of the same Washington merry-go-round.